This summer in New York, as she delivered her first big speech on the economy — outlining a plan to raise wages, unleash “innovation,” and protect against the risks of the “shadow banking system” — Hillary Clinton was cut off mid-sentence.
"Sen. Clinton, will you restore Glass-Steagall?" a man yelled repeatedly, his voice booming. "Will you restore Glass-Steagall?" That morning in July, as security escorted the heckler from the auditorium, Clinton didn't acknowledge the question. At the time, aides declined to characterize her position. But his query is one that still surfaces with progressive voters across the country. And this week, with the release of her plan to limit abuses on Wall Street, Clinton gave her first clear answer: No.
Her proposals, which aides outlined this week, would target risk-taking at hedge funds and financial institutions in addition to the big banks, enact a tax on high-frequency trading, and aim to enforce and strengthen the "Volcker rule," a provision in the 2010 Dodd-Frank Act aimed at speculative investments by banks.
On Tuesday, at a town hall in Davenport, Iowa, Clinton described her plan as "more comprehensive" than pushing for Glass-Steagall, which was repealed in 1999 under Bill Clinton. Reinstating Glass-Steagall, she suggested of the Depression-era law separating commercial and investment banking, would be a fight of "the past."
"I’m going to go after what I think are the real problems, not the problems of the past, but the problems of today. Because what I’m interested in is stopping something like this from happening again," Clinton said of the 2008 financial collapse after a voter asked about her view of the law. "That is my goal."
The reinstatement of Glass-Stegall has become something of a rallying cry for liberals, including Clinton's Democratic challengers, Sen. Bernie Sanders and Martin O'Malley, along with Sen. Elizabeth Warren, a leading figure in the progressive flank of the Democratic Party. Clinton, while not clearly stating her position until this week, has been generally dismissive of the fixation on Glass-Steagall.
"The big banks are not the only things you have to worry about. When you think about what happened to us in 2008 — Lehman Brothers, AIG, the big insurance companies — they were as big a problem as any of the big banks," Clinton said in Davenport this week. "So if you only reinstate Glass-Steagall, you don’t go after all these other institutions in what is called the shadow banking system — hedge funds and other big financial entities that have too much power in our economy."
This summer, Sanders signed on to an effort in the U.S. Senate, led by Warren and Republican John McCain, to restore Glass-Steagall's structural divide between traditional banking and riskier investment banking. O'Malley, the former governor of Maryland, has also proposed an updated version of the Glass-Steagall firewall.
Next week in Las Vegas, the candidates will contrast their economic plans during a televised debate — the first of six scheduled by the Democratic Party.
Liberals have argued that the repeal of Glass-Steagall contributed to the economic crisis seven years ago. Bill Clinton, who oversaw the repeal as president with the support of Republicans in Congress, has disagreed with those claims. Last year, he said Glass-Steagall's repeal "didn't have anything to do with the crash."
His wife, who during her first campaign spoke at length about the housing and mortgage crisis in the lead-up to the collapse, has also defended the repeal.
"There were positive reasons," Clinton said in a 2008 interview. "What I believe the failure in '99 was, is that once you remove some of those barriers between banks and investment banks and the kind of business that could be done by banks, that there needed to be a new regulatory framework. But there was no appetite in the Republican Congress or with a Republican president to take the second step."
In this campaign, Clinton identifies risk-taking more broadly as the root of the abuses that led to 2008. Her plan, an aide said, would rein in "irresponsible risk-taking" across the shadow banking system and at the big banks, and would "hold bad actors on Wall Street accountable" — whether individuals or corporations, the aide said.
"What I’m proposing is that we go after the risk. If they are too big to manage, that’s a risk, and they should not continue," Clinton said at her town hall. "If they are so big they are causing disruptions in the marketplace, that’s a risk. So, I have what I consider be a more comprehensive approach toward what we need to do to rein in the big institutions, including the big banks."
The high-frequency trading tax would penalize what the campaign called "unfair and abusive" strategies — particular those involving "excessive" levels of order cancellations. (The Clinton official did not detail the tax further.)
Clinton's plan also calls on the Securities & Exchange Commission to ensure stock market rules provide "equal access" to information and "increase transparency." The aide said Clinton believes that equity markets must better serve the investing public, not "the interests of high-frequency traders and 'dark pool' operators."
Clinton would also look to strengthen the Volcker rule, closing a loophole that allows firms to invest up to 3% of their capital in hedge funds. Barney Frank, the former Massachusetts representative who co-authored the Dodd-Frank bill, has been advising Clinton on her plans, she said in Iowa on Tuesday.
"Dodd Frank has a lot of good stuff in it, but it’s been really slow-going, because all of the big interests have been fighting against implementing," Clinton said. "I’m making progress on it. I’ve talked to Barney Frank, who supports me, and basically that’s what we’re gonna do. We’re gonna enforce it. We’re gonna implement it."
"But I’m going to go after risk," she said. "Sometimes risk is associated with bigness in a bank, sometimes risk can be an insurance company, sometimes risk can be a shadow banking system."